Housing Permits Grow at Slowest Rate Since July 2011

According to the Census Bureau, there were 64,300 housing permits filed in January 2014. This was the fewest permits filed since January 2013 and the second fewest permits filed since April 2012. Compared to one year ago, January's housing permits filed increased by just 0.9%. This is the slowest rate of growth in housing permits since they contracted in July 2011. The annual rate of growth (17.6%) has reached its slowest rate since April 2012. The growth rate has been decelerating since April 2013.

In the current environment of zero interest rates from the Federal Reserve, the real Fed funds rate is a good leading indicator of housing permits. The change in the real Fed funds rate has been trending down year over year since April 2013. (Also, the change in the real 10-year treasury rate has been trending lower since July 2013.) A continued decline in the year over year change in real interest rates would be positive for the housing market. However, unless inflation picks up, it will be difficult for the year over year change in the real Fed funds rate to move much lower after the first quarter of 2014. Therefore, it is likely that the rate of change in housing permits will continue to slow down in 2014